Foreign Demand for Japanese Real Estate on a Surge

Reports have pointed out that property in Japan is currently a very popular with global investors, with 2.2 billion US Dollars already invested this year. Residential property in Tokyo is being noted as among the most popular, alongside hotels and offices in Tokyo.

“Hotels, Tokyo offices, Tokyo residential, I would say, will be the three specific sectors and opportunities that are being most sought after by international investors,” said Alistair Meadows, Asia Pacific director for International Capital Group at global property services firm Jones Lang LaSalle.

The list of buyers that have already declared interest is like a who’s who of global property investment’s biggest players, featuring: Blackstone Group and Fortress, Germany’s Deutsche Bank, US-based Jones Lang LaSalle’s funds arm LaSalle Investment and Franklin Templeton, as well as Mapletree investments, which has earmarked almost $1 billion for Japanese investments, including office buildings, data centres, and R&D facilities.

Meanwhile Franklin Templeton is interested in the loans market; specifically the firm is hoping to get a good deal (discount) on a large portfolio of Japanese loans. It is thought that the intention of the investment would be to earn attractive returns, whilst also giving the firm access to physical assets in Japan.

Given that the global financial meltdown was caused by investments in mortgage backed securities going tits up because many of the mortgages in the packages defaulted, this is a sign that either that international investment is getting back to normal, and/or that Franklin Templeton and its analysts have a great deal of faith in the Japanese economy.

Blackstone plans to buy Morgan Stanley’s Japanese loans, which are securitized by commercial real estate such as office buildings.

The sector is really taking off, after years in the doldrums; travel agencies are even offering “Buy Japanese Property Tours” to wealthy Chinese investors.

According to international realtors, on top of the 2.2 billion already invested, foreign private equity groups, REITs and brokers have earmarked a further $6.6 billion est. for Asian investments, with a particular interest in bricks and mortar assets and property debts in Japan.

“While we are cautious around the country’s fundamentals, we do believe that the sheer size of the market allows for opportunities,” said Peter Kim, Managing Director, at ING Real Estate Investment Management, which has funds invested in Japan.

Japan was not hit by the financial crisis, per se, but in a strange irony is now actually benefiting from it. The Japanese economy and property market crashed and bottomed over a decade ago, in what is termed an L shaped recovery (where the market bottoms and doesn’t come back up). Now that the global crisis zeroed the clocks, Japan has a chance to stimulate and grow in line with its regional neighbours and allies, and is benefiting from trending investments in distressed and discounted residential and commercial assets.

A bottoming out of real estate prices and a recovery in the debt market are some positives investors are buying into, according to analysts.

Distressed or marked-down properties in Japan, such as debt backed by commercial real estate, are also emerging on the radars of foreign buyers.

“We are finding a degree of success in finding deals through trust banks or lenders who have taken control of over-leveraged assets,” said Jacques Gordon, global investment strategist at LaSalle Investment Management.

As foreign money pours in, the real surge in buying may just be starting, predicts Mark Brown, a real estate analyst at researcher Japaninvest.

The gap between what distressed property owners are asking and the amount buyers are willing to pay is closing fast, he notes, adding that would lead to plenty of new deals.

Les Calvert is the owner of overseaspropertymall.com and many other property and travel related websites. Les writes news and articles on the overseas property market for leading websites, trade magazines and newspapers.